Parabolic SAR (0.02, 0.2)

The Parabolic SAR (0.02, 0.2) is a trend indicators indicator used in Skyrexio Strategy Builder for trend strength measurement and direction identification.

Introduction

Parabolic SAR (Stop and Reverse) is a trend-following indicator that provides dynamic stop-loss levels and trend reversal signals. This indicator is context-dependent - it provides LONG signals when dots appear below price and SHORT signals when dots appear above price. Parabolic SAR excels at trailing stops and identifying potential trend reversals.

How Parabolic SAR (0.02, 0.2) Works

Parabolic SAR was developed by J. Welles Wilder Jr. as a trend-following system that provides potential reversal points. The indicator uses an acceleration factor that starts at 0.02 and increases by 0.02 each period until it reaches the maximum of 0.2, creating a parabolic curve that follows price trends.

Key characteristics of Parabolic SAR:

• Dynamic stop-loss levels - Provides trailing stops that tighten as trends progress • Trend reversal signals - Dots switching sides indicate potential trend changes • Acceleration factor - Increases momentum sensitivity as trends develop • Time-based exits - Forces position closure when trends lose momentum • Clear visual signals - Dots above/below price provide unambiguous direction

Market Psychology: Parabolic SAR reflects the market's momentum and time decay. Dots below price show bullish momentum with accelerating upward bias. Dots above price indicate bearish momentum with accelerating downward pressure. The acceleration factor captures the psychological tendency for trends to accelerate over time.

Key Characteristics

Attribute	Details
Category	Trend Indicators
Type	Trend Following with Dynamic Stops
Primary Use	Trend following and trailing stops
Timeframe	All timeframes supported (1m to 1M)
Confirmation	Volume, momentum indicators, trend strength

Strategy Applications

🟢 LONG STRATEGY (Primary Use)

Parabolic SAR is primarily a LONG signal when dots appear below price. Use LONG entries when price is above SAR dots, indicating an uptrend with dynamic support levels for trailing stops.

Base Entry Order (LONG)

Trigger Type: Once per bar close
Bar TF: 1H
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

Additional Entry Orders (LONG)

Additional Entry 1: SAR dots tightening (trend acceleration)
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

AND

First Condition: Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Additional Entry 2: Volume confirmation of breakout
First Condition: Close Price
Timeframe: 1H
Operator: Cross Above
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Volume Weighted Moving Average
Timeframe: 1H

Take Profit Orders (LONG)

Rule 1: Exit condition - Price approaches SAR dots
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

OR

Rule 2: Exit condition - Momentum divergence warning
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 75

AND

First Condition: MACD Histogram
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Exit condition - Trend exhaustion signal
First Condition: Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Stop Loss Orders (LONG)

Rule 1: Stop loss - Price breaks below SAR dots
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

OR

Rule 2: Stop loss - Volume confirms reversal
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Volume Weighted Moving Average
Timeframe: 1H

OR

Rule 3: Stop loss - Momentum reversal confirmed
First Condition: MACD Line
Timeframe: 1H
Operator: Cross Below
Second Condition: MACD Signal Line
Timeframe: 1H

🔴 SHORT STRATEGY (Primary Use)

Parabolic SAR is primarily a SHORT signal when dots appear above price. Use SHORT entries when price is below SAR dots, indicating a downtrend with dynamic resistance levels for trailing stops.

Base Entry Order (SHORT)

Trigger Type: Once per bar close
Bar TF: 1H
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

Additional Entry Orders (SHORT)

Additional Entry 1: SAR dots tightening (trend acceleration)
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

AND

First Condition: Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Additional Entry 2: Volume confirmation of breakdown
First Condition: Close Price
Timeframe: 1H
Operator: Cross Below
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Volume Weighted Moving Average
Timeframe: 1H

Take Profit Orders (SHORT)

Rule 1: Exit condition - Price approaches SAR dots
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

OR

Rule 2: Exit condition - Momentum divergence warning
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25

AND

First Condition: MACD Histogram
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Exit condition - Trend exhaustion signal
First Condition: Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Stop Loss Orders (SHORT)

Rule 1: Stop loss - Price breaks above SAR dots
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

OR

Rule 2: Stop loss - Volume confirms reversal
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Parabolic SAR (0.02, 0.2)
Timeframe: 1H

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Volume Weighted Moving Average
Timeframe: 1H

OR

Rule 3: Stop loss - Momentum reversal confirmed
First Condition: MACD Line
Timeframe: 1H
Operator: Cross Above
Second Condition: MACD Signal Line
Timeframe: 1H

Advanced Strategy Combinations

Multi-Timeframe Parabolic SAR Analysis

Setup

Higher Timeframe Confirmation:

• Daily: SAR direction (overall trend bias)

• 4H: SAR confirmation + trend strength

• 1H: SAR execution signals + volume confirmation

Execution

LONG: Daily/4H SAR below price + 1H breakout above SAR SHORT: Daily/4H SAR above price + 1H breakdown below SAR Filter: Align all timeframes for highest probability trades

SAR Reversal Strategy

Setup Process:

1. Identify SAR dot position change (below to above or above to below)

2. Wait for price to confirm the reversal direction

3. Enter on the first pullback to SAR level

4. Use previous SAR extreme as initial target

Execution:

• Base Order: Price crosses SAR dots (reversal signal)

• Additional: Volume confirmation and momentum alignment

• Take Profit: Previous trend extreme or momentum divergence

• Stop Loss: SAR dots provide dynamic trailing stops

Risk Management Guidelines

Position Sizing

Strategy Type	Position Size	Conditions
LONG Strategy	Standard	Price above SAR dots with volume
SHORT Strategy	Standard	Price below SAR dots with volume
High Volatility	Reduce size	ATR > average (wider SAR gaps)
Low Volatility	Increase confidence	ATR < average (tighter SAR stops)

Parabolic SAR Reliability Factors

High Reliability

✅ Clear SAR reversal signal ✅ Volume confirms price breakout ✅ Trending market conditions ✅ Momentum indicators align with direction

Low Reliability

❌ Choppy, ranging market conditions ❌ Low volume on SAR breakout ❌ Conflicting momentum signals ❌ Extreme volatility causing whipsaws

Best Practices

For LONG Strategies

1. Wait for clear signals - Only enter when price is clearly above SAR dots

2. Use SAR as trailing stop - Let SAR dots provide dynamic stop-loss levels

3. Volume confirmation - Ensure breakouts above SAR have volume support

4. Trend alignment - Confirm higher timeframes support the uptrend

For SHORT Strategies

1. Wait for clear signals - Only enter when price is clearly below SAR dots

2. Use SAR as trailing stop - Let SAR dots provide dynamic stop-loss levels

3. Volume confirmation - Ensure breakdowns below SAR have volume support

4. Momentum alignment - Confirm with MACD or RSI for stronger signals

Common Mistakes to Avoid

• Ignoring market conditions - Using SAR in choppy, ranging markets

• Fighting the signal - Trading against clear SAR direction

• No volume confirmation - Entering without volume support

• Premature exits - Not letting SAR provide natural trailing stops

Market Conditions Analysis

Market Type	LONG Strategy Effectiveness	SHORT Strategy Effectiveness
Strong Uptrend	🟢 High (SAR below price)	🔴 Low (against trend)
Strong Downtrend	🔴 Low (against trend)	🟢 High (SAR above price)
Ranging	🔴 Low (whipsaws common)	🔴 Low (whipsaws common)
Trending with Volume	🟢 Very High (ideal conditions)	🟢 Very High (ideal conditions)
High Volatility	🟡 Medium (wider stops)	🟡 Medium (wider stops)

Related Indicators

Indicator	Relationship	Link
SuperTrend	Similar trend-following approach	SuperTrend (10, 3)
Average True Range	Measures volatility for context	Average True Range (14)
Moving Averages	Complementary trend identification	Moving Averages
ADX	Trend strength confirmation	Average Directional Index (14)

Conclusion

Parabolic SAR is a context-dependent indicator that excels at providing dynamic trailing stops and trend reversal signals. Its primary strength lies in adapting to trend momentum while providing clear exit signals when trends lose steam.

Key Takeaways

• PRIMARY USE: Trend following with dynamic trailing stops (LONG when dots below, SHORT when dots above)

• SECONDARY USE: Trend reversal identification when dots switch sides

• ALWAYS: Confirm signals with volume and avoid using in ranging markets

• REMEMBER: SAR works best in trending markets, can produce whipsaws in choppy conditions

Success with Parabolic SAR requires patience to wait for clear trending conditions and discipline to use the dots as trailing stops. The indicator's strength lies in its ability to adapt to trend momentum while providing objective exit signals.

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